Foundations let wealthy leave legacy

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Stephanie Cordes, a graduate of UC Santa Barbara, has a present from her father, Ron, that she treasures. It's a handmade pink scrapbook titled, “5 Life Lessons From Dad.”

Inside are whimsical photos of her with friends and family alongside typed pages containing his simple guidance. The chapters are: “Seek your passion.” “Do your best.” “Good enough is never good enough.” “No excuses.” “Make a difference.” “Go for it.”

She was moved. But what really touched her was a letter he wrote to her last fall, which concluded with: “You are my legacy.”

And she is, in more ways than one.

In mid-January, Cordes, 24, quit what she had called her dream job working at Condé Nast as an advertising sales assistant to work full time for the Cordes Foundation, the nonprofit family foundation her father created when he and his two partners sold their firm, AssetMark Investment Services, to Genworth Financial in 2006 for $230 million.

“I am going to be the legacy of the foundation,” said Cordes, who is an only child. “It is really important that I am involved because it is going to be mine eventually.”

According to the most recent statistics, the number of family foundations like the Cordes Foundation has exploded since 2001. There are more than 40,000 family foundations in the United States, making grants totaling more than $21.3 billion a year, up from about 3,200 family foundations doling out $6.8 billion in 2001, according to the Foundation Center in Washington.

These nonprofits are on the upswing for several reasons. First, friendly tax breaks make the charitable vehicle appealing. And it offers philanthropists who want more control over their giving a way to give with fewer restrictions than would come with a donor-advised fund or writing a check to an established charity.

Then, too, there is often an underlying desire for baby boomers to instill in their children the significance of giving and compassion for those less privileged. A family foundation can curb a sense of entitlement that may come along with inheriting wealth.

The Council on Foundations defines a family foundation as one whose funds are derived from members of a single family. At least one family member must serve as an officer or board member of the foundation, and as the donor.

And you don't have to be a billionaire to create one. Sixty percent of family foundations have assets of less than $1 million.

“We are not the Gates Foundation,” said Cordes, 55, who started his foundation with $10 million from the sale of his firm. “We have several less zeros on our balance sheet.” The challenge is “trying to figure out how you can really have an impact with a somewhat more modest amount of money,” he said.

“As a corporate CEO, I was involved in philanthropy,” he added. “My wife, Marty, and I gave money to lots of different things, but when I sold the company, I realized that I was able to open some personal bandwidth for myself that would give me an opportunity to have more direct participation in philanthropy.”

Instilling the value of giving back in their daughter was certainly part of the plan. Stephanie was 16 when her parents started the foundation. She knew her father was selling the business but didn't have any concept of family wealth or the amounts involved, Cordes said.

“We never tried to push her into the foundation, but we wanted to put her in a position where those opportunities were available if she wanted to do them,” he said.

Establishing the foundation has also allowed Cordes, like many baby boomers starting an encore career midlife, to ponder the question of how to “move from success to significance,” he said. “How do you leave a legacy?”

Creating a foundation requires much more than money. Among other things, foundation founders must familiarize themselves with the myriad tax and other regulations involved and carve out the time required to review programs for funding.

Traditionally, the chief complaints about creating a family foundation have been the time and cost involved, but that seems to be getting under control as more firms specializing in advising families are cropping up.

Costs vary by asset size and level of service and typically run the gamut from $5,000 for a plain vanilla setup up to around $35,000, said Elliot Berger, managing director of Arabella Advisors. Advisors in Philanthropy, a nonprofit in Chicago, offers Web seminars and other educational and networking opportunities.

Ron and Marlys Boehm of Santa Barbara were able to set up their $1 million family foundation, the Boehm-Gladen Foundation, in three days for around $10,000, with the help of Foundation Source, a private foundation advisory group, based in Fairfield, Conn.

“Our adviser made it very painless and quick,” Boehm said. “Although family foundations have grown in popularity, we found there were still not a lot of advisers who are knowledgeable about the ins and outs,” said Boehm, 60, chairman, chief executive and primary shareholder of the publishing firm ABC-CLIO.

Annual administration fees can range from 0.86 to 1.62 percent of total assets, depending on the size of the fund and whether there's paid staff, according the 2013 Foundation Operations and Management Report by the Association of Small Foundations.

And, by law, you must give away around 5 percent of average monthly assets each year or face a 30 percent excise tax on whatever portion of it has not been distributed within a year.

Moreover, there's the IRS Form 990 to file annually. Net investment income of private foundations is generally taxed at 2 percent, but often is pared to 1 percent through various tax strategies.

These IRS filings are not to be taken lightly. In the past, the tax agency has scrutinized family foundations for a variety of abuses.

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